The Panic of 1907: A Human-Caused Crisis, or a Thunderstorm?
A Comparison Between The New York Times and Wall Street Journal’s Coverage of the United States’ First Modern Panic, by Bonnie Kavoussi,
Before the Panic of 1907 seized the United States’ financial markets, the Knickerbocker Trust Company’s headquarters in midtown Manhattan stood as sedately as a Roman temple. Though completed only three years earlier, the building exuded a sense of seemingly lasting grandeur.1 Four Corinthian columns stood in front, and customers would wait inside at chairs with writing desks, surrounded by walls of white Norwegian marble, bronze detailing, and mahogany.2 It seemed as though nothing could shake the 23-year-old trust company, one of the largest banks in the country. However, when a growing crowd of depositors lined up outside the bronze doors to reclaim their deposits on the morning of Tuesday, October 22, 1907, the foundations began to crumble. After doling out $8 million to depositors at its four New York offices, the Knickerbocker Trust Company suspended its payments and shuts its doors two and half hours before the end of business hours.3 It would not reopen until March 1908.4
For those who glimpsed the front pages of The Wall Street Journal or New York Times on the morning of October 22, 1907, it may have seemed as though there was little reason to panic. Both their front pages trumpeted that the New York Clearing House had the situation under control and that New York’s financial sector was sound. However, only The New York Times discussed the Knickerbocker Trust’s troubles at all. While it is difficult to draw broad conclusions about the two newspapers’ coverage of the Panic of 1907 from one incident alone, their divergent coverage on that day raises a number of questions. Did both newspapers treat Wall Street favorably? Was the Times more critical of banking circles during the panic than the Journal? How did two newspapers explain the cause of the panic? Did the Panic of 1907 appear in their news pages as a thunderstorm outside human control, or as a human-induced crisis? The picture is not as clear as it may seem.
Once the Knickerbocker Trust—the United States’ second largest trust company—had suspended its operations, a crisis in confidence ensued, and the panic spread throughout the financial system.5 Several other banks suffered from bank runs and failed.6 J.P. Morgan himself, Wall Street’s largest titan, had to step in with his own money and encourage other bankers to help save the New York Stock Exchange from collapse. The United States had already been headed toward an economic downturn due to a severe credit shortage, a long-term dip in the stock market, variable gold supplies from London, and deflation of the dollar.7 In such a fragile financial environment, the banking crisis of October 1907 sent shockwaves throughout the economy. After the full panic had run its course, commodity prices had fallen 21 percent, the dollar volume of bankruptcies had spiked by 47 percent, and unemployment had risen from 2.8 to 8 percent.8 Ultimately, the Panic of 1907—one of the most severe financial crises in the United States’ history—led to increased financial regulation by the government and the creation of the Federal Reserve System in 1913.
The Bank of Commerce had announced on Monday, October 14, 1907, that it would stop clearing the Knickerbocker Trust’s checks, after the revelation that the Knickerbocker Trust’s president, Charles T. Barney, had been associated with two prominent but unsavory Wall Street bankers—Charles W. Morse and F. Augustus Heinze—in various financial schemes. Subsequently, all other national banks refused to cash the Knickerbocker Trust’s checks, for fear that the Knickerbocker Trust would not be able to honor those checks for payment.9 Heinze and Morse’s most recent scheme—an attempted corner of the stock of the United Copper Company, initiated by Otto Heinze, Augustus’ brother—had already sent stocks tumbling on Tuesday, October 15, in a downward spiral that would continue for weeks and signal the beginning of the panic.10 On Sunday, the New York Clearing House had decided to take its most drastic measure to date: it ordered the immediate elimination of Augustus Heinze and Charles Morse from all banking interests in New York City.11 Barney was forced to resign from the Knickerbocker Trust as well as the National Bank of Commerce,12 according to the board’s official statement, “‘because of his connection with Mr. Morse and the Morse companies.’”13 It is in the context of this tumult that the Knickerbocker Trust—the U.S.’ second-largest trust company—suffered from a crippling bank run the following day, with repercussions that would send the United States economy into a financial crisis.
Meanwhile, on October 22—the day of the Knickerbocker’s fateful bank run—The Wall Street Journal and New York Times exuded confidence in the business world. “The [New York] Clearing House has the banking situation so well in hand that no doubt is entertained of its ability to do all that is necessary,” The Wall Street Journal proclaimed on its front page.14 “It has already given a superb demonstration of its power.” “Stocks show the best performance in weeks,” declared the sub-headline of an article on stock performance: “Action of the Bankers Clearing House Restores Confidence.”15 The New York Times also wrote glowingly about the markets. “Brokers came downtown yesterday morning feeling decidedly cheerful and in some cases extremely optimistic with regard to the market,” the reporter wrote in the lead paragraph.16 He then took special aim at the “skeptical souls” who assumed that the Clearing House’s $2 million in aid to national banks was only “day by day.” He argued that the Clearing House was obligated to continue providing aid and that it would not pull its money at such a critical time. In the face of bank runs over the past few days, the New York Clearing House had decided to extend $2 million in aid to two troubled banks: the Mercantile National Bank, which Augustus Heinze headed as president, and the New Amsterdam National Bank, which Charles Morse had also been involved in.
In the midst of their shared optimism, only one of the two newspapers mentioned the Knickerbocker Trust’s troubles on October 22, 1907. While The New York Times’ front page covered Charles Barney’s resignation as president of the Knickerbocker Trust Company and the refusal of the National Bank of Commerce to clear for Knickerbocker—which would ultimately lead to the Panic of 1907—The Wall Street Journal did not mention the Knickerbocker Trust or Charles Barney once. The public had already found out by October 21 that Barney was an associate of Morse and Heinze and may have been involved in their schemes, and they would soon discover that the Heinzes had approached Barney for help with their attempted corner of the copper market—which he ultimately gave.17 However, the Journal refused to acknowledge this news. Instead, their most pertinent front-page headline was outdated—“Clearing House Has Banking Situation Here Well At Hand”—leading to an article that failed to mention that the Clearing House would no longer aid the Knickerbocker Trust. The Times reporter for their front-page story, on the other hand, waited outside J. P. Morgan’s apartment until the 2 a.m. conclusion of a meeting between top trust company and bank officers and Morgan and his own trading partners. He reported on their ultimate decision: that Barney would resign as president, and the Knickerbocker would have to clear its own deals, but Morgan would help fund the Knickerbocker to stay afloat.18 (The next day, Morgan and his lieutenants decided that it would be useless to help the Knickerbocker Trust after all, since they determined it to be insolvent.19)
The New York Times reporter’s determination to get the scoop mimicked the ambitions of the Times’ own publisher. When Adolph S. Ochs, an ambitious small-town newspaper publisher from Knoxville, Tennessee (See Picture 1.), purchased The New York Times in 1896, during the height of yellow journalism, he sought to initiate a new era of rigorous, impartial reporting across the country. However, he became indebted to more powerful interests in the process. Ochs bought the bankrupt newspaper with “only borrowed backing” for $75,000 20 and expanded the Times’ operations by borrowing more. By the time he had bought the Times—which had been “beyond his means” in the first place—“he was by every accounting standard a bankrupt.”21 Ochs was then forced to beseech his creditors for mercy. According to former New York Times reporter Harrison Salisbury, who chronicles the Times’ early history in his book Without Fear or Favor, exactly half of Ochs’ correspondence was devoted to writing excuses to his creditors.22
Ochs found the solution to his fiscal problems in a loan: a $250,000 mortgage from Equitable Life Assurance Society, which gave Equitable indirect ownership of The New York Times’ control stock.23 He borrowed another $2.5 million from creditors including Equitable to build an impressive tower in Longacre Square, which he pressured New York City into renaming Times Square in the newspaper’s honor (See Picture 2).24 While still unable to repay the construction loan, he had to borrow more money to buy new machinery and expand the Times’ operations further.25 When Equitable came under government investigation, The New York Times covered the scandal thoroughly, but Ochs feared the possibility that a Hearst or Pulitzer-owned newspaper could uncover the Times’ financial obligations to the insurance company. Although The New York Times’ reporting about the Equitable scandal did not reveal favoritism, Times editorials were sympathetic to Equitable’s problems.26 In order to avoid scandal, Ochs approached Marcellus Hartley Dodge, who agreed to take ownership of the Equitable loan in 1905 and loaned The New York Times a total of $300,000. 27 It was not until 1916—twenty years after Ochs had first purchased The Times—that Ochs fully owned the control stock of The New York Times.28 According to Salisbury, the late New York Times reporter, Ochs had been operating on borrowed money from the very beginning, and “[h]e felt comfortable that way.” “Nothing more typified The Times in the Ochs era than these private, confidential and long-enduring arrangements among friends,” Salisbury writes.29
Ochs quickly became part of the establishment and was proud of that fact.30 He valued his relations with the Wall Street investors who had helped him purchase The New York Times—including the elder J. P. Morgan.31 He also relished being the “confidant” of presidents and secretaries of state and having quiet entree to Whitehall or 10 Downing Street.32 While Ochs said he did not admire the New Deal, he counted Herbert Hoover as a friend and admired Calvin Coolidge.33 Although he was a Democrat by default since he had been raised in the South, he supported gold and fiscal conservatism rather than free silver.34 Over time, the Times started to reflect his political leanings. New York Times historian Elmer Davis, who was also a Times journalist, noted that the Times was an “independent Democratic newspaper” that admired Teddy Roosevelt, but not William Jennings Bryan.35 Conspiracy theories about the Times abounded for years: some people whispered that J.P. Morgan was the Times’ true owner,36 that other financiers and politicians were the newspaper’s secret masters, or that “the paper was dominated by its bondholders as a group.”37 Davis refuted these claims as unfounded. However, as the Times grew wealthier as circulation and advertising revenue started to flourish, some outside observers became more suspicious about the Times’ financial backing.38
Ochs did not hide the fact that he wanted to reach out to businessmen as an audience when he took over the Times.39 Raising the quality and scope of the Times’ business coverage quickly became one of his main goals. He demanded consistent coverage of financial news market reports and real-estate transactions, among other activities that publications previously had considered too boring to warrant an article.40 According to former New York Times reporter Meyer Berger, Ochs’ managing editor, Henry Loewenthal, “injected new life into his Wall Street reporters, goading them to greater output.”41 Carr Van Anda, who took over as managing editor in 1904, also excelled in spearheading finance coverage during his tenure.42 While general news reporters at the Times and other newspapers assumed that Ochs’ drive for business news would make the Times duller and less appealing, to their astonishment, Ochs was able to bring in thousands of “new, substantial readers and a brisk flow of advertising.”43 Berger claimed that other New York publications did not take any serious measures to compete with the Times in business and financial coverage. Thus, the Times soon earned a second name: the “‘Business Bible.’ ”44
Amidst this success, Ochs found that his intent to make the Times the paper of record for the establishment often presented difficulties for his stated mission to deliver the news impartially.45 He believed in editorial independence, but not crusades that would alienate the elite. He did not wish to set the Times against the establishment—it had been difficult for him, as a Southern Jew, to become part of the establishment in the first place.46 Just as he did not wish to jeopardize his own place in the elite, according to Salisbury, “he did not propose to jeopardize the economic health of The New York Times with unconventional attitudes.”47 Nonetheless, he sought to counteract the sensationalism of yellow journalism during that time not only to make the Times the paper of record, but also ostensibly for more ethical reasons. In his mission statement, he declared in 1896 that he wanted a paper that would "give the news, all the news, in concise and attractive form, in language that is parliamentary in good society, and give it as early, if not earlier, than it can be learned through any other reliable medium; to give the news impartially, without fear or favor, regardless of any party, sect, or interest involved."48 While his reference to “good society” indicated that he wished for the Times to a moderate paper read by the elite, his mission statement is an ode to freedom from all bias. This desire for impartiality stems back to the newspaper’s original prospectus from 1851, which included the declaration that the Times “‘is not established for the advancement of any party, sect or person.’”49 Ochs also took pride in the Times’ unadorned content, preferring a bland editorial page to any shrill or strong statements.50 He believed in the value of communicating facts without any interest in mind, and that is what he sought to achieve as he revolutionized The New York Times.
While Ochs had to reconcile his mission to deliver the news impartially with his desire to remain within the establishment that he had labored to join, Clarence W. Barron—who purchased Dow Jones and Company in 1903 and served as The Wall Street Journal’s publisher during the Panic of 1907—reveled in his longtime position in the Northeastern elite (See Picture 3). During his tenure as publisher, he moved between three patrician residences: a suite at the Waldorf-Astoria in New York, a home in Boston, and a baronial mansion in Cohasset, Massachusetts, where he went fishing, led the yacht club,51 and kept eighteen telephones.52 An excessive eater, he would consume stewed fruit, juice, oatmeal, ham and eggs, fish, beefsteak, fried potatoes, hot rolls, butter, and coffee with cream for breakfast.53 Barron reportedly dictated memos to his secretaries almost incessantly, no matter where he was or what time it was. A coterie of male secretaries followed him around, jotting down his ideas and commentary.54 Barron would sometimes send over 100 memos to editors every day and still write several news articles and editorials himself.55 He ruled over Dow Jones and Company like a king.
Barron believed fiercely in the unbridled free market and was not afraid to use the Journal as a platform to defend it. Over time, both Barron and the Journal grew increasingly defensive about unregulated business practices. “He [Barron] bullishly asserted that the grand tycoons of his era were performing divine work,” writes Francis Dealy, author of The Power and the Money. 56 Barron once even heralded J. P. Morgan as “the nation’s Prometheus.”57 As the United States government grew warier of Wall Street’s unregulated business practices after the Panic of 1907, The Wall Street Journal under Barron “cast itself more and more in the role of Wall Street’s public defender.”58 In one 1921 editorial, he berated government officials for considering any financial regulations:
“‘Capitalism—the sacred notion of free men and free markets—has enabled our economy to ascend from the third circle of Hell to Halcyon prosperity in fifty short years. But rather than continue the system exactly as is, there are those who would have the government intervene and control Wall Street, as if it were more illegal gamble than legitimate risk…. Like Moscow’s new leaders, these people don’t understand the cornerstones of free enterprise, supply and demand. “‘To the underutilized officials pursuing the regulation of our financial markets, we say, seek some other cause to get reelected or promoted. Wall Street, because it is so free, provides all the information needed by any investor to prosper.’”59While the argument was harsh and direct, it suggested much revealing subtlety. First, Barron tied free enterprise to religion in order to make its virtues appear self-evident. He described capitalism as “the sacred notion of free men and free markets”—implying that it is a natural instinct, but only for “free men.” By portraying the transition from a post-Civil War economy to the boom years of the 1920s as rising from hell to Halcyon, he furthered the theme of capitalism’s connection to the sacred. Then he connected pro-regulation politicians to the Communists in the Soviet Union, just when the Red Scare had started to subside. He implied that by default, anyone who is against free enterprise is also opposed to democracy, freedom, and perhaps even religion. Nonetheless, the last two sentences are the most revealing of his entire polemic. After insisting that “we say” that government officials should find some other cause to press for their own gain, he switched effortlessly into using “Wall Street” as the subject of the next sentence, claiming that the financial markets provide all the information any investor needs to prosper—very much the way The Wall Street Journal idealized itself. In effect, the subjects “we” and “Wall Street” became interchangeable. The Wall Street Journal was now Wall Street.
The Wall Street Journal—a defender of big business—historically did not write critically about Wall Street. “Barron tended to go easy on these men and their firms,” writes Rutgers Business School Professor Jerry Rosenberg.60 Dow Jones and Company was founded in 1882 as a bulletin news service meant to inform businessmen about the latest investment information; it expanded into a newspaper and ticker with indexes and averages later.61 Creativity was not the highest priority at The Wall Street Journal, which
was still a sideline business at Dow Jones and Company.62 “Life as a Dow Jones reporter was somewhat grubby and not very demanding of a man’s intelligence,” author Edward
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